THE AUTHOR<\/strong>: The recent events in Ukraine and in the Middle East have renewed attention to the legal instruments available to parties affected by economic sanctions<\/a>. Although debate over the legal mechanisms for addressing their consequences predates that period, including in relation to earlier regimes targeting Iran<\/a>, Libya<\/a> and Syria<\/a>. That debate contributed to new case law. Accordingly, local courts and arbitral tribunals can give effect to sanctions when deciding cases on the merits<\/a>. And some jurisdictions, including the UK, have also enacted legislation excusing performance prohibited by sanction<\/a>s. Economic sanctions are also generally accepted as part of international public policy<\/a>. A party affected by sanctions may rely on several legal mechanisms. This article considers legal instruments commonly analyzed in doctrine – force majeure, impr\u00e9vision<\/em> or hardship, frustration, illegality, and impossibility. It focuses on jurisdictions influenced by the French legal tradition (Napoleonic Code), and US and English law. <\/p>\n\n\n\n Statutory force majeure<\/a> is widely recognized in many civil law jurisdictions, including France (art. 1218 of the Civil Code) and those influenced by the Napoleonic Code: Portugal (art. 790\/1 of the Civil Code), Italy (art. 1256 of the Civil Code), Switzerland (case law), Spain (art. 1105 of the Civil Code), various Latin American countries, etc.<\/p>\n\n\n\n It is important to distinguish a statutory force majeure doctrine, which is a default legal regime applicable to a contract without any specific provisions, and the contractual regime of \u201cforce majeure clauses<\/a>\u201d, the latter applying where clauses inserted by the parties to a contract provide either conditions different from those under the governing law or provisions complementing such legal provisions.<\/p>\n\n\n\n Although the principles of force majeure developed in national laws may differ<\/a>, practitioners assert that such differences appear to be largely nominal than substantive<\/a>. Thus, some general inferences can be made.<\/p>\n\n\n\n Under <\/strong>the doctrine of force majeure as developed in legal systems influenced by the Napoleonic Code, an event occurring during contract performance can potentially excuse non-fulfilment of obligations. To excuse non-performance, a force majeure event should not only be unforeseeable but also should be external to a party (meaning beyond a party’s control) and irresistible (meaning that this event should be objectively unavoidable). An unforeseeable event may exonerate a counterparty from its obligations to execute and may also operate as an excuse for any prior non-execution of an obligation. <\/p>\n\n\n\n The doctrine is commonly invoked in international trade where unforeseen events occur, making performance impossible or impracticable<\/a>, including before international tribunals.<\/a><\/p>\n\n\n\n On April 4, 2014, an ICC tribunal applying Swiss law rendered an award<\/a> in case No. 18192. The dispute concerned a contract for the construction and sale of industrial equipment for a plant in the former Yugoslavia. Delivery, originally due in March 1992, was postponed three times. After the UN Security Council adopted resolution No. 757<\/a> imposing sanctions against the former Yugoslavia, the defendant could not deliver the equipment, as scheduled, until the lifting of the embargo<\/a>.<\/p>\n\n\n\n The arbitral tribunal gave effect to the contractual force majeure clause and held that \u201cthe embargo imposed by Canada as a consequence of the UN Sanctions\u201d can be qualified as a force majeure event under the contract entered into by the parties, this being in line with, and admissible under, Swiss governing law<\/a>.<\/p>\n\n\n\n By contrast, in National Oil Corp. v. Libyan Sun Oil<\/em> (No. 4462\/AS\/JRI), the tribunal rejected a force majeure argument. Although the contract contained a force majeure clause, the tribunal applied Libyan common law on a supplementary basis and ruled<\/a> that sanctions must completely preclude contractual performance to constitute force majeure.<\/p>\n\n\n\n These examples show that force majeure may be a defense in sanctions-related disputes, but success depends on the applicable law and the facts. Scholars have pointed out that there are some drawbacks of the application of the force majeure doctrine, in particular: 1) to apply force majeure provisions, all the conditions of a force majeure should be satisfied, in accordance with the applicable law; 2) there is no consistent approach with regard to characterizing sanctions as falling within the scope of the force majeure definition, which is reflected in the divergent approaches adopted by different jurisdictions. <\/p>\n\n\n\n Another legal mechanism that can be relied on by parties to a dispute involving a change in circumstances scenario is impr\u00e9vision<\/a><\/em> or hardship<\/em><\/a> doctrine.<\/p>\n\n\n\n This doctrine deals with cases where unpredictable circumstances arise that burden a party with a heavy or disproportionate loss<\/a>es, and it is widely accepted in the legislation of various civil law jurisdictions: France (art. 1195 of the Civil Code), Spain (case law), Italy (arts. 1467, 1468 of the Civil Code), Portugal (art. 312 of the Civil Code), Mexico (arts. 1796 \u0438 1796 (Bis \u0438 Ter)) of the Civil Code) and others.<\/p>\n\n\n\n The application of the doctrine of imprevision\/hardship in jurisdictions influenced by the Napoleonic Code can be triggered in scenarios of an \u201cunforeseeable change of circumstances<\/a>\u201d: when a party to a contract should be faced with an extremely detrimental change in conditions. In this context, \u201cunforeseeability\u201d refers to situations where a continuing performance contract suffers a profound imbalance as a result of an unforeseeable change in the circumstances that had existed at the time of the contract formation<\/a>, making the continuous execution more onerous. The question is whether the consequences of economic sanctions can potentially qualify as creating such an imbalance.<\/p>\n\n\n\n There have been more and more doctrine and cases where domestic courts in different jurisdictions apply the doctrine of impr\u00e9vision<\/em> in circumstances related to sanctions (for instance, the Spanish Dictamen del Consejo de Estado n\u00ba 1980\/2024<\/a> confirmed that the doctrine of impr\u00e9vision<\/em> can be invoked in a scenario of augmentation of costs provoked by the COVID crisis and the Ukrainian events, subject to strict conditions). At the same time, there are few domestic court decisions or arbitral awards analyzing how the doctrine of impr\u00e9vision<\/em> or hardship would apply in circumstances involving economic sanctions.<\/p>\n\n\n\n It is worth noting that a default consequence of application of the doctrine of impr\u00e9vision<\/em> under French law (art. 1195 of the Civil Code) is not the complete discharge of the contractual obligations, but renegotiation of a contract and modification of the initially agreed conditions; in exceptional scenarios, a contract can be terminated by a judge. However, in other jurisdictions influenced by the Napoleonic Code, the ramifications of impr\u00e9vision<\/em> are not the same, and the default remedies vary from jurisdiction to jurisdiction:<\/p>\n\n\n\n Consequently, the effects depend on the applicable law. As in the case of statutory force majeure, the doctrine of impr\u00e9vision<\/em> is a default legal regime applicable where the parties have not provided specific clauses in their contracts. The parties may \u201ccontract around\u201d the default rules and provide conditions that better meet their mutual understanding (\u201chardship clauses<\/strong><\/a>\u201d).<\/p>\n\n\n\n In common law, one mechanism that is frequently advanced when an unforeseeable change in circumstances occurs is the doctrine of frustration<\/a><\/em>.<\/p>\n\n\n\n It is primarily invoked in cases in which a party is adversely affected by the occurrence of an intervening circumstance where such occurrence significantly diminishes the value<\/a> of the performance of one of the counterparties.<\/p>\n\n\n\n The application of the frustration doctrine in the case of changes in circumstances caused by economic sanctions is a possibility discussed in the doctrine<\/a>.<\/p>\n\n\n\n One of the drawbacks of application of this doctrine, both in English and New York legal systems, is that those systems reflect the primacy of the principle of contractual sanctity, and courts may recognize frustration only in limited circumstances<\/a>. For instance, in Salam Air SAOC v Latam Airlines Groups SA<\/em>, the English court held<\/a> that government action affecting one party\u2019s benefit under a still-lawful contract was insufficient to amount to frustration.<\/p>\n\n\n\n Similarly, in Sage Realty v. Jugobanka<\/em>, the New York Court determined<\/a> that sanctions blocking all Yugoslavian entities from using their assets in New York were reasonably foreseeable, so the defendant was not excused from performance.<\/p>\n\n\n\n While frustration is invoked by parties in sanctions-related disputes before courts applying common law, this doctrine appears to apply only narrowly, at least in England and New York.<\/p>\n\n\n\n Another legal instrument that may be invoked before tribunals applying common law, in particular in England and New York, is \u201cillegality<\/em><\/a>\u201d. Under this doctrine, it can be argued that economic sanctions render a contract illegal, thus exonerating a party in default.<\/p>\n\n\n\n This argument was made in the English case Mamancochet Mining Limited v Aegis Managing Agency Limited<\/em>, where the defaulting party argued<\/a> that paying a marine insurance claim was prohibited by US and European sanctions against Iran. The English court disagreed, holding that \u201cpayment of the claim under the Policy\u201d \u201cwould not expose the Defendants to a sanction within the meaning of the sanctions clause\u201d, and that the Claimant was entitled to payment. Mamancochet <\/em>case therefore confirms that illegality applies only to exceptional circumstances under English law.<\/p>\n\n\n\n New York courts have been more receptive. In Nat’l Petrochemical Co. of Iran v. M\/T Stolf Sheaf<\/a><\/em>, the court barred<\/a> relief because the agreements were prohibited from enforcement and formed \u201cpart and parcel of a larger plan to violate\u201d the US trade embargo.<\/p>\n\n\n\n Thus, although the doctrines have the same name in England and New York, their applications to sanction-related disputes differ in these jurisdictions.<\/p>\n\n\n\n Alternatively, parties in some common law systems may invoke the \u201cimpossibility\u201d<\/a><\/em> doctrine, although its scope differs across jurisdictions.<\/p>\n\n\n\n Under English law, this doctrine releases a promisor whose contractual performance becomes vitally different from what had reasonably been expected of him, due to the occurrence of a supervening event, from performance<\/a>. <\/p>\n\n\n\n English case law illustrates the court\u2019s reluctance to treat sanctions as events giving rise to absolute impossibility where performance remains feasible (Gravelor Shipping Ltd v GTLK<\/a><\/em>). <\/p>\n\n\n\n Similarly, in US contract law, impossibility can be invoked in a scenario where an unforeseen event occurs after the contract is made, thus making such a contract performance impossible<\/a>. New York courts tended not to recognize the impossibility defense where contractual obligations were hindered by sanctions. Thus, in Red Tree Invs. LLC v. Petroleos de Venezuela<\/em>, the sanctioned party was not excused<\/a> from making payment, as the sanctions rendered the payment more difficult, but not impossible.<\/p>\n\n\n\n Hence, the two jurisdictions appear to have adopted a similar approach by not recognizing impossibility in sanctions-related cases.<\/p>\n\n\n\n Over the past few years, economic sanctions have become a major challenge for many contractors. It is therefore important for affected parties to choose the most effective and appropriate legal mechanisms before courts and arbitral tribunals.<\/p>\n\n\n\n This choice should primarily depend on the law applicable to the particular dispute. The laws of different countries vary, and the same doctrine may have different applications across jurisdictions. Hence, the first step for counsel is to analyze the specific features of the legal mechanisms invoked under the applicable law. The second step is to determine whether the contract contains clauses establishing a special regime different from the applicable law (such as force majeure or hardship clauses). Even if it does, it remains necessary to assess whether tribunals will give effect to those clauses.<\/p>\n\n\n\n In any event, it is useful to keep alternative excuse doctrines in mind, as a tribunal may disagree on the law applicable to a dispute.<\/p>\n\n\n\n
Yanina Zellane Vlasenko<\/a>,<\/strong> University Lecturer at ISIT-Paris 2 Pantheon Assas<\/strong><\/p>\n\n\n\n
\n\n\n\nForce Majeure<\/strong><\/strong><\/h2>\n\n\n\n
Positions Taken by Various ICC Tribunals with Respect to Sanctions as \u201cForce Majeure\u201d Events<\/strong><\/h3>\n\n\n\n
Impr\u00e9vision (or Hardship)<\/strong><\/strong><\/h2>\n\n\n\n
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<\/s><\/s><\/p>\n\n\n\nFrustration <\/strong><\/strong><\/h2>\n\n\n\n
Illegality <\/strong><\/strong><\/h2>\n\n\n\n
Impossibility <\/strong><\/strong><\/h2>\n\n\n\n
Conclusion<\/strong><\/h2>\n\n\n\n